Irish government report highlights 'worst charges possible' for pensions
IRELAND – A new report by the Irish government on pension charges has highlighted the "worst charges possible", according to the Irish Association of Pension Funds (IAPF).
Speaking after the Department of Social Protection published its report on charges across Irish pension vehicles that highlighted an average fee of 2.18% per annum, IAPF chief executive Jerry Moriarty stressed that such high costs – resulting in a 31% reduction in pension savings in some instances – were not representative of occupational arrangements.
Moriarty said the department had highlighted the "worst charges possible" by focusing on fees levied by New Retirement Annuity Contracts and New Executive Pensions, charging full commission – both individual arrangements.
He noted further that certain occupational defined contribution (DC) arrangements with more than 500 members charged significantly less at 0.73%, calling the widely covered 2.18% charge "a little bit misleading".
The report did state that occupational arrangements compared "favourably" with international benchmarks – such as the fees incurred by members of the UK's National Employment Savings Trust (NEST), the government-backed low-cost option launched to complement the introduction of auto-enrolment in the country.
"The research findings suggest Irish defined contribution pension schemes are reasonably competitive from a members' perspective," the report said.
"Most reduction in yields calculated based on the results of the trustee surveys identified a cost structure which is closer to the lower end of pension costs (as identified via the UK NEST scheme) than to the higher end."
NEST levies a 1.8% charge on contributions to the scheme, as well as an annual management charge of 0.3%.
Once the government loan used to fund its start-up costs has been repaid, members will likely only be left with the 0.3% AMC.
Moriarty also noted the absence of any mention of the Irish government's 0.6% pension levy from the report on charges – the impact of which both minister for social protection Joan Burton and finance minister Michael Noonan said could be offset by lower management fees.
"The report clearly shows that, in a DC world, in a lot of cases, the levy is greater than the charges being imposed on the scheme," he said.
A previous survey on fees conducted by LCP noted that high charges were cancelling out the benefits of active asset management.
However, it is understood that most asset management fees range between 0.05% and 0.2% for occupational mandates.
Discussing the report, minister Burton said: "It is clear from the research that many schemes and individuals are paying more than they need to. The research particularly points to small occupational schemes and individual pension policies incurring high costs."
The department noted the economies of scale offered by funds exceeding 500 members, a fact that was welcomed by Moriarty.
Asked if this could potentially pave the way for the introduction of industry-wide funds – such as the existing Construction Workers Pension Scheme – he noted that it was something the IAPF had suggested in the past.
"Scale does make a difference, and anything that can be done to encourage that, we would favour."
Burton said the department would now give the industry three months to submit recommendations, as the 290-page report was meant to serve as a "fact-finding study".
She added that additional policy or regulatory action would be forthcoming once the consultation was closed.